NBER Working Papers and Publications

This paper examines quantitatively the potential for monetary policy to avoid self-fulfilling sovereign debt crises. We combine a version of the slow-moving debt crisis model proposed by Lorenzoni and Werning (2014) with a standard New Keynesian model. We consider both conventional and unconventional monetary policy. Under conventional policy the central bank can preclude a debt crisis through inflation, lowering the real interest rate and raising output. These reduce the real value of the outstanding debt and the cost of new borrowing, and increase tax revenues and seigniorage. Unconventional policies take the form of liquidity support or debt buyback policies that raise the monetary base beyond the satiation level. We find that generally the central bank cannot credibly avoid a self-fulf...

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New NBER affiliates are appointed through a highly competitive process that begins with a call for nominations in January. Candidates are evaluated based on their research records and their capacity to contribute to the NBER's activities by program directors and steering committees. New affiliates must hold primary academic appointments in North America. On January 1, 2020, there were 1,581 NBER-affiliated researchers based at 180 institutions.